Hochschild Mining (LSE:HOC) — Interim Results

0:00 Good morning and welcome to the HOCHSCHILD MINING PLC Investor Presentation. Throughout this quarter presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time by the Q and A tab situated in the right corner of your screen. Just simply type in your questions and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company can review all the questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to make the following poll.

0:26 And I'd now like to hand you over to Eduardo Landine, CEO. Good morning, Giselle. Good morning, everyone, and welcome to our retail presentation related to h one results 2024. I mean, the main takeaways of 2024 for the first six months is that we continue with a very strong ESG performance, especially on safety. Our revenues went up 25%, up to $392,000,000 The EBITDA went up 79% to $178,000,000 Our all in is $1,510,000,000 which is the lowest part of the range in our 2024 guidance.

1:13 In terms of growth, Mararosa mine in Brazil is ramp up and is in production. Monte Do Carmo project in Brazil, the option was secured by the approval of their shareholders. Royal Opata project in Peru is progressing with their permitting process. In terms of capital discipline, we have $89,000,000 at the end of June. Our net debt is $271,000,000 and we are focused on debt repayment, growth and capital return.

1:49 Continuing with ESG, as I said, safety results are very encouraging. I mean, we are not confident with these results. We will keeping we'll keep working to reduce this to zero. But I have to say that for underground miners to be in a frequency rate of 1.09 is good. Also, on the environmental performance, we have been very good. Our ECO score is 4.85 out of six. And also, are continuing working in decreasing the consumption of water. If we go to the next page, this is just a reminder of our strategy, the one what we presented on the Capital Market Day back in November.

2:36 We focus our growth on brownfields. We believe that brownfields generates long term value. It will extend our life of mine. That is something that the market required. And also, this brownfield exploration will be focused on only on minable resources. Operational efficiency is another part of our strategy. We want to implement, and we are in the way to implement a lean philosophy across the company. We have been working on process optimization that you'll see the results at Inmaculada. And, also, as we have demonstrated in Inmaculada, back in 2015 and today with Mararosa implementation, we are very good on development, projects on time and budget.

3:25 ESG, I I have already comment, but we want to drive responsibility and respect across the company with a world class safety performance. And the final part of this strategy is this disciplined capital allocation where we can, through our balance sheet, funding the organic growth. We can pay the debt. We can make capital returns. And, of course, as we have demonstrated in Mararosa and probably, we will do in Monte Del Carmen, create value accretive m and a. This is the production, projections that we presented back in November. So as you can see in the next three years, we can we will be producing between three hundred and forty and three hundred and seventy five thousand ounces of gold.

4:16 And the cost profile, it will go down from 1,500 to 1,000, let's say, 1,100 between 1,101 thousand 200.

4:29 In, this semester has beaten our expectations. The thing is that we have implemented with the help of a consultant a improved project improving project of the mining cycle. And thus, this mining cycle incorporate ventilation improvements, mine support, incorporating marginal cutoffs, shift chain optimization, ore control and blasting length. So the production, we expect to have a better production than the guidance for Inmaculada. And as you probably remember, in the actual all in sustaining cash cost of 2024 is including $45,000,000 CapEx that include the TSF expansion waste rock facility implementation, a new reverse osmosis plan and also the mine development that we were pending from year 2022 and 2023, where had did had the lack of a permit.

5:34 In terms of brownfield program, at, we are doing extremely well. We have very promising results at the shore of Nicholas And Carrie. We believe that we'll be I mean, we have the possibility to add between zero point seven and zero point eight five million ounces of gold equivalent at the end of this year as a in fair resources. But, also, I mean, our our priorities to maximize the life of mine, we have a four year plan in place where we could add around 500,000 ounces per year with very good grades, around 500 grams per ton. Going to Mararosa.

6:22 Well, let me say that I think we have done a very good job in this project. We did this project on time on budget. It took us, something like ninety days to ramp up the project. On the on May 13, we declare a commercial production. And, of course, as as business as usual, we have some issues during the ramp up. Today, we have the plant totally stable, producing between 8,010 ounces per month. Unfortunately, we were a little bit optimistic at the beginning of the year, but I think we will be producing between 70,075 ounces this year from Mararosa with very good all in sustaining cash cost.

7:18 We continue looking for opportunities to identify new resources to extend life of mine. And of course, the plant that has a nominal capacity of 7,000, we believe that during the stabilization process, we could go up to 8,000. In terms of Mararosa near mine exploration, as you can see on the same mineralization trend of Pose, which is the small yellow dot there, We have Bastinho. We have Pose South. We have many, many places where we can increase resources, and the idea is to, double, the initial resource in the next few years.

8:07 In Pallancata, this is the Roropata new project. As you know, in the last two years, we have been able to add 50,000,000 ounces. We believe that we can add another 30,000,000 to 35,000,000 ounces of silver equivalent. And we continue drilling Pablo, Cantera, and Erica with very good results. We have many other areas that we will explore during 2024 and 2027. So that mean that the potential of the new Royal Ropata project is is is very, very impressive. And as you know, we are in the process to get, the new permit. I believe that, I mean, to start the process with the with the I mean, to finish the baselines, we need to finish with the easements, with the communities, and we are in in that way.

9:01 San Jose, let me say that we believe that we are exposed to a very very good opportunity in terms of the possible devaluation that the government is planning for now until the end of the year that could mean an important reduction of cost for us. This year, we have been able to replace the production. We found some new resources at Freya. Freya was an old vein, and Odin Amaura. And, of course, we will continue drilling around Ferro Negro project operation, because we have mining properties around, and we believe that we could find extension of their veins in our mining property.

9:53 Monte Do Carmo, the option is secured. This is a new project in Brazil that we secure an option. We pay $50,000,000. This project is in Tocantins, North of Goias. I mean, the state of Tocantins is a very friendly mining jurisdiction. I was there a couple of weeks ago. I was, with the authorities. I mean, these authorities are totally welcome, for new investors. I mean, this project has a feasibility study. It's an open pit. It has an the environmental license. As you know, it has the the most complicated license. So if we execute the project, we need only the installation license.

10:40 It has a very good infrastructure, like paved roads, airport, water, electricity. So we believe that it's a very, good project that fits really well with our current operations in Brazil. While we are waiting to exercise the, option is we are doing some drilling. That drilling was twin drilling to make sure that variability of the deposit is the correct one. We have confirmed that it is. And, also, we are drilling some new resources in order to bring a 100,000 ounces additional, resource to make sure that at consensus prices is a is a profitable project for us, in line with our capital discipline policy that we established in our strategy.

11:32 I pass the presentation now to Eduardo Noriega, our CFO, to give you some comments on the profit and loss accounts. Thank you, Eduardo. Thank you very much, Eduardo. I am very happy to present to you a strong set of results for the first half of twenty twenty four. As you can see, revenue numbers at around $392,000,000 for the first six months came very strong higher than what we had in 2023. I would also like to point out the attributable net profit, which was $52,100,000 again higher than the results that we had in H1 twenty twenty three. Adjusted EBITDA was at $177,000,000 very strong, 77,600,000 higher than what we show in 2023.

12:27 These results and improvements versus the first half of the previous year are mainly a result not only of strong market conditions reflected in better gold and silver prices, but also are a result of stronger production from our mines. So again, good results for the first six months. In terms of balance sheet evolution, I would just highlight that we have we started with $89,000,000 of cash in 2023, December 2023, and we finalized with a similar amount $89,000,000 as of June 2024. You can see the strong cash generation capacity of our two assets producing in H1 twenty twenty four in Maguala and San Jose.

13:23 And the cash that we generated was mainly used to complete the construction of Mararosa and also invest in the Monte Del Carmen option that we acquired as well as advancing in our Roto Rojibata the permit of the Roto Rojibata project in Peru.

13:41 So again, very, very healthy balance sheet that will allow us to advance in our growth plans as well as on repaying our financial obligations.

13:58 In terms of all in sustaining cost, in 2024, we had a an all in sustaining cost of $15.10 dollars per ounce of gold of gold, which is a number that it was below what we had in 2023 and pretty much on track to achieve the annual guidance of between 1,510 and $1,550 per ounce of gold. So, again, pretty much a pretty good results and in line with our guidance for the year. In terms of capital expenditures, sustaining CapEx was at $79,000,000 for all our operations.

14:43 That number was above the CapEx that we had in H1 twenty twenty three, where we were delaying some of the CapEx as explained by Eduardo and Dean due to HOCHSCHILD waiting for an important permit in Magulada, which was secured in the second half of twenty twenty three. So we're catching up with some capital expenditures in mainly Inmaculada. And as a result of that, as I said, we had $79,000,000 of sustaining CapEx for the first six months. And we're pretty much in line with our guidance for the year, which is between $171,000,000 and $178,000,000 for the for the full twelve months. In terms of project CapEx, as you can see in the bottom, Maranrosa, we're very, very proud to say that we completed the construction of these important assets for the group on time and on budget. And the total construction CapEx that we're reporting is $2.00 $5,000,000 again fully executed.

15:47 And we now have Maragrosa, a fantastic asset already in commercial production and we'll show the impact of that asset

15:58 in H2 twenty twenty four. Margin wise, our EBITDA margin for H1 twenty twenty four was 45%, showing an important increase versus the results that we had in the previous two years and better when that our peer groups peer group show us as EBITDA margin. Again, this is a result not only of very good market conditions, but also the impact or the good production and cost controls that we have in all our operations. I just would like to highlight again that in H2, in addition to the production that we show in the first six months, we're going to have the full impact of Maranorosa and asset with low all in sustaining costs.

16:59 The company is has a strong balance sheet and is well positioned to repay its financial obligations, but also fund its short term growth strategy. With cash at $89,000,000 and a total debt of $360,000,000 our net debt was $271,000,000 for the first six months.

17:21 Net debt to EBITDA also improved and it is at 0.8 times, well within the range that we have indicated that market would like to be in, which is between 0.5 times and 1.5 times. We're now heading to the lower part of that range. We have cages in place that we placed when we were completing that we're building Maranosa mainly to secure some minimum cash flows to complete the construction, but also to pay down our financial obligations. Finally, I would just like to highlight that the company thinking on is evaluating on restarting its its its its dividends.

18:13 This is something that we are evaluating right now, but it will be it will be review with the full year 2024 results. Finally, a slide that shows the compelling arguments of our valuation metrics. I think there is a strong case to believe that there is still a lot of upside in our share price

18:44 value as you can see from the analysis presented in this slide where we're comparing relevant metrics with our peers. Back to you, Eduardo. Thank you very much, Eduardo. Very impressive results. Well, as a conclusion, let me say that on h two twenty twenty three, we define a strategy that I just show you with these four pillars. And h one has been the semester to implement to start implementing this strategy. I mean, we continue to focus on the core business. We are totally focused on increasing production and also lowering cost.

19:32 As I said, we have a world class ESG performance, especially on safety. Today, we have a new low cost Brazil mining production. Inmaculada is outperforming, with a lot of efficiency projects implemented already that it will be there forever. Also, we have secured a very important option in Brazil to add a new project in the pipeline. We believe that we have a very strong h one brownfield progress, and resources will be presented at the end of the year. Roryropata is to deliver 100,000 ounces per year from 2028. And of course, we have this disciplined capital allocation strategy implemented.

20:21 As a summary, I would say that today, the company is producing around 350,000 ounces of gold. And we have a plan in place with Royal Opata and with Monteo Carmo to become a company that could produce 500,000 ounces or more than 500,000 ounces of gold from 2028 onwards with a long life of mine in each site. So that's as a conclusion. Thank you very much. And now we are here to answer your questions. Thank you very much. Perfect. Thank you very much for your presentation. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab, which is situated on the top right hand corner of your screen. But just while the company take a few moments to read the questions that have been submitted today, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessed via investor dashboard. Charles, at this point, if I could hand over to you to chair the Q and A, that'd be great, and then I'll pick up from you at the end.

21:20 Thank you very much. The first question well, actually, there's been a couple of questions on this, but let me read this one, and I think it should cover the same subject. Eduardo, can you give more details on drilling at Monte De Camo? Is the aim to get the resource to 1,000,000 ounces? Will you announce these drilling results? And is drilling confined to the area where the resource is already defined?

21:44 The final part of that, I can read this back again, but the final part is, if the option is taken up, would you expect to start construction next year? Oh, that that's a very good Yeah. It's a good question. Well, basically, as I said, in Monteo Carmo, we have done a an important drilling campaign to make sure that the variability of the asset is is the correct one. And we have done that and and it's proven, and we have our geological model. We are trying to bring some ounces in in the next I mean, we we have been drilling for three months. We are trying to bring some ounces, as I said, to make sure that the that the project is profitable at very low prices.

22:31 Then we will continue drilling because the good news about Monte Carlo is that it has 83,000 hectares with a lot of targets defined. So we believe that, I mean, we, I

22:45 mean, we can reach that million ounces or even more. So the that's that's the that's the reason we believe that it's a very, very interesting project. I mean, in terms of the timeline, let's imagine, yeah, that we exercise the option from now until the end of the year. So 2025 will be a year where we'll be doing all the detail engineering and getting the installation license. That could take between twelve months, ten months. So I would say that I could see if we exercise this option, I could see the company building Monte Del Carmen probably beginning at the end of twenty twenty five or at the beginning of twenty twenty six.

23:31 We have to remember that there is a rainy season, an important rainy season in Brazil, and probably January, February, or March is not the best time to start construction. So if we are not able to start construction in October, November, December, probably will be March March, April 2026. Great. Thank you. The next question. How significant could the brownfield exploration program be to delivering growth in the medium term? Well, I believe that we have a huge potential on brownfield exploration. I believe this is the most profitable way to grow. Once we have a a initial resource, we have demonstrate always that we are able to increase those resources.

24:21 The best sample is Inmaculada. Inmaculada, we start that project with 80,000,000 ounces of silver back in 2015. And today, we have tripled that. With the new environmental permit that we got last year for twenty years, we have many, many targets. And I mean, the potential of growth is huge at Inmaculada.

24:45 If we go to Pallancata, it's exactly the same. Royal Opata shows the possibility to add 2,000,000 ounces of gold. We have many, many targets, and that's the reason we are doing the environmental the new environmental permit to be able to bring all those ounces in Royal Opata. If we go into San Jose, San Jose has been replacing their resources since 2008. And this year, with the extension of FREA, we have been able to extend one more year of production. So it's always like that, and we believe that the properties around Cerro Negro has a lot of potential. And, Mararosa, we've already found some resources at the bottom of the pit, but there is also many, many places with potential brownfield exploration.

25:43 And Monte Ocamo, I have already mentioned that we believe that it has huge potential because 83,000 hectares with defined targets already from Teredado gold mean that, I mean, possibilities are there. So I would say that brownfield is one of the main parts of our strategy because I believe a lot on brownfield exploration. And we are very good. Thank you very much. The next question is Brazil seems to be a great market to be operating in with lower cost projects and diversifying your risk. Will you pursue further projects in Brazil? Well, at the end of the day, I mean, this business depends on how good is your asset. Yeah? So we have to be with eyes open to new project.

26:34 Brazil looks like the perfect place to be. It's true that Brazil is really depends on the state because there is a state that is very difficult to do mining. Let's see. Let's say, Para, for example. But to Cantins and Goias are very good places. So we have an m and a team that is looking for opportunities. And, of course, if there is opportunities in Brazil, we will pursue them because, we have the right team there. We have the Brazilian right right team, which I think is extremely important, you know, to operate in Brazil. So, yes, the answer is yes. Thank you very much. The next question. Immaculada seems to have performed better than expectations in the first half of the year. What was this due to?

27:20 Well, basically, remember that during 2022 and 2023 that we didn't get the permit, we we were not able to develop the mine. Once we got the permit last year in August, we began to do developments, and thus give you a lot of flexibility in the mine. Also, we decide to hire a consultant. And together with our internal team, we have implement an efficient very efficient improvements, you know, in different ways, like the mining cycle, the blastings, the equipments, or control, the shift change. So that mean that today, we have a very efficient mine.

28:06 You know? And those improvements is is not onetime. I mean, it's one off. It's not it's not one off. It's something that it will it will stay there. But let me remember everyone that we said that we will continue producing around 200,000 ounces in Inmaculada. And that's the idea, I mean, to extend life of mine and produce these 200,000 ounces with a very good cost for an underground mine. Okay. Thank you. The next question, I think we did cover, but let's emphasize this. Eduardo, when can we expect a return of the dividend? Thank you, Charlie. We are having internal discussions to evaluate returning to dividend payments by the end of the year. So as you know, we our strategy consider first to reduce our indebtedness levels. We are executing on that first. And once we see the full year results of 2024, we will consider that that again.

29:14 Okay. Thank you very much. The next question is, as far as I have seen, the political situation situation seems to have stabilized in both Peru and Argentina. Is this is this a correct reading of the situation? I would say that, yes, it's a correct reading. The situation in Peru is it's it's I mean, there is an equilibrium between the congress and the government, and we believe that that equilibrium will stay until election on 2026. And in Argentina, I would say that, president Mille is implementing measures that they are difficult measures, but they are giving some results. The opportunity for us in Argentina is that if the currency devaluates, from now until the end of the year, and they are talking about 30% devaluation, without inflation because inflation is going down very quickly, that would mean a very good cost reduction for the our Argentina operation.

30:19 Thank you very much. And then this question is, do you have any long term strategy with regards to having an ideal split between gold and silver? Well, as I said, we like to be exposed on silver. We like gold because gold is a is a is a very good metal. But as I said, I mean, the most important thing in this mining business is the asset quality. So we are open, you know, to to operate and to develop projects with gold and silver. I am very happy to say that Royal Opata is a project that is nearly a 100% silver, so that will increase the exposure to silver for HOCHSCHILD.

31:09 And the fundamentals of for silver today in terms of supply and demand based on the new technologies are very good. So, I mean, with the current split of I don't know. If we are seventy thirty, seventy percent gold, 30% silver, we could go up to sixty forty. We feel quite good. Okay. This question is, is there any evidence of a silver squeeze caused by the physical buying from India and China now or in the near future? Well, to tell you the truth, I'm not an specialist on that, and I don't know I I don't have the answer for that. But what I know is that silver, in terms of demand and supply, there is a lot of demands for silver based on new technologies. So I believe that we are bullish on on silver as well as gold.

32:05 And and and, Eduardo, on the supply side, there aren't too many new silver mines coming on the primary side, are they? Exactly. Exactly. I mean, Royal Opata is one of the biggest silver producers that could come up to the market in 2028 producing between ten and twelve million ounces of silver. So that's very good for us. Okay. Thank you very much. That's that's all the questions there are at the moment. Perfect. Thank you very much for answering those questions you can from investors. Of course, the company can review all the questions submitted today, and we'll publish those responses on the Investor Meet company platform. But just before we redirect investors, provide you with their feedback, which is particularly important to the company, Eduardo, could I just ask you for a few closing comments? Well, I would like to thank everyone for being in this presentation.

32:53 As I said, we have a company that produced 350,000 ounces with a low cost compared with the current prices. Of course, we will continue doing efficiency programs to try to be as much competitive as possible. And also, we have a growth story in place that could mean a 60% growth in the next three, four years. So we believe that I mean, to have our share is a very good bet for the future if you want to be in the gold and silver industry. Thank you very much for your time. Thank you once again for updating investors today. Could I please ask investors not to close the session as you now be automatically redirected to provide your feedback in order the management team can better understand your views and expectations?

33:45 This will only take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of HOCHSCHILD MINING PLC, we'd like to thank you for attending today's presentation, and good morning to you all.